This may seem like a strange and somewhat arcane subject for a
blog post, but shared limits can be a real policy differentiator
when it comes to mixing different types of coverage or different
coverage forms. Shared limits generally occur in multi-peril
policies such as Business Operations Policies (BOP) or complicated
property damages policy forms. ALPS does not offer any LPLI
policies with a shared limit of liability, and as long as I am the
CEO we won't.
In the past several years we have seen a few insurance carriers
trying to bundle BOP with LPLI in an effort to control the cost of
LPLI and to break into the market. Some of us remember when St.
Paul offered a "coverage A" (LPLI), "coverage B" (General
Liability), "coverage C" (Property and related Perils) policy form.
Yes that makes me really old. Back then companies offered LPLI on
an occurrence[1] rather than claims made[2]
basis. Most companies still write BOP, G/L and Property coverage on
an occurrence basis, but virtually nobody will write any form of
LPLI except on a "claims made" basis. Today the carriers selling
combined coverage offer the BOP coverage on an "occurrence" basis
and the LPLI, as a "claims made" rider, but the BOP and the rider
have a shared limit of liability[3].
Aggregate limits and missing coverage types cause confusion at
best. It's tough enough to have mixed coverage forms as a
triggering event that could occur that would bring coverage into
play in multiple policy years. Take the situation where a law
office burns down and as a result of a destroyed file, the lawyer
misses a deadline in a law suit and a client's case doesn't get
filed within the prevailing Statute of Limitations (S/L). If the
fire occurred in one policy year and the S/L ran in the next, you
could conceivably have two policy limits to respond, but would you
with a common aggregate. Hey this sounds pretty good, but wait,
with a shared limit of liability it can get mushy and really
complicated. What about the situation where a lawyer gets sued for
malpractice in 2010 and it is reported to the company (claims
made), and in the same year the building burns (due to use of too
many space heaters which the lawyer has been warned of as being a
hazard) and a tenant is killed in the fire. Now we have an LPLI
loss and a G/L loss all within the common limit of liability, and
potentially a fire loss as an even lower sub limit of coverage
within the same aggregate limit. This seems a bit farfetched, those
three losses won't occur at once. I concede the remote possibility,
but we don't insure for certainty events, we insure for the
uncertainty. We don't need to look to the extreme for an example of
the limit getting burned. A more likely scenario occurs when the
LPLI loss occurs and gets paid at the policy limit and all of a
sudden the lawyer's mortgage goes into default because limit of
liability has been fully expended and the G/L and property coverage
required under the policy no longer exist. I think you get the
point; mixing coverage can create unintended consequences. In
addition, the limit of liability you need to cover the potential
catastrophic loss becomes more difficult to calculate
We don't see this often but when we do our insured lawyers
generally see this bundling as a good thing. After all, they get
$1,000,000 in LPLI coverage and increase their G/L limit to
$1,000,000 and keep a fire policy for $750,000 on their building
and all for less than they used to pay for the $1,000,000 in LPLI.
They don't focus on the fact that they get less coverage for the
three perils because of a shared limit of liability. My advice;
don't mix LPLI with other coverage. Lawyers really don't have the
time to spend dealing with these conflicts and the peace of mind of
knowing that you have a specific limit of liability just for your
clients' and families' protection is priceless.
On a closing note, remember policy forms differ greatly and each
needs to be understood from the perspective of what each policy
purports to offer, so you can't assume that any of the scenarios
above apply to any particular company's policy. In fact, I have
deliberately mixed a couple of specific examples so that no
competitor feels singled out and picked on.
As always if you want a more detailed understanding of any part
of this particular article or any of ALPS policy provisions
please e-mail your questions to me at the address found on the
"View from the Corner Office" home page or call me at
1-800-327-2577. You can also contact our customer service team who
all have a strong understanding of ALPS policy forms and how
they compare to others in the industry. ALPS policyholders can call
or e-mail their Account Manager (you know how to reach them) and
the rest of the world can call or email Julie Patterson (1-800-367
2577, jpatterson@alpsnet.com),
Matt Pickett (1-800-367-2577, mpickett@alpsnet.com) or
Keith Fichtner (1-800-367-2577, kfichtner@alpsnet.com).
[1] Liability of the insurer attaches on the
occurrence of the triggering event or when the error occurred.
[2] Liability of the insurer attaches at the
time a claim is made or when a demand is made and reported.
[3] One aggregate limit of liability that can
be reduced by a loss under any coverage part of the policy.